Question
Grant Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 20,000 units of one of its
Grant Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 20,000 units of one of its most popular products. Grant currently manufactures 40,000 units of this product at its plant. The plant is operating at 50 percent of capacity. There will be no marketing costs on this special order. The sales manager of Grant wants to set the bid price at $9 per unit because he is sure that Grant will get business at that price. Others on the management team of the firm object, saying that Grant would lose money on the special order at that price. Below is information on Grants costs at different levels of production:
Units | 40,000 | 60,000 |
Manufacturing costs |
|
|
Direct materials | $80,000 | $120,000 |
Direct labor | 120,000 | 180,000 |
Factory overhead | 240,000 | 300,000 |
Total manufacturing costs | $440,000 | $600,000 |
Cost per unit | $11 | $10 |
Requirements:
- Will a $9 bid price increase Grants profit? If yes, by how much? Show supporting computations.
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